The Associated Press reports that “Washington is losing its zeal for an all-out fight over hefty executive bonuses.” The Senate has quietly shelved its version of the AIG bonus tax, which means, presumably, that the House’s measure will never be enacted into law and can be put down to pure grandstanding. Beyond that, Democrats from the White House to Nancy Pelosi and Barney Frank have toned down their anti-AIG, anti-Wall Street rhetoric.
It would be nice to report that this change of heart is due to politicians having figured out that they were wrong about the AIG bonuses, but that doesn’t seem to be much of a factor. Rather, the politicians have figured out that they need the bankers:
The about-face came as it become clear that financial institutions would not partner with the government on new efforts to restore vital credit flows to businesses and consumers if it meant later being demonized for its use of taxpayer dollars.
Geithner proposed on Monday a new government program that would rely on the help of private investors to buy up to a $1 trillion of bad debt, or “toxic assets,” sitting on the books of major banks, giving them more ability and incentive to lend. …
Now, Democrats are walking a fine line. For Geithner’s bank-rescue plan to work, private investors will have to trust that the government will keep up its end of the bargain.
It remains to be seen whether the private firms who are being counted on to invest their capital will be reassured by the politicians’ belated change of heart.